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Analysis: Fed finds business confidence

Tim Mullaney, USA TODAY
2:41 p.m. EST March 6, 2013

ORG XMIT: CAPS403 In this Jan. 26, 2011 photo, a home with a pending home sale sign is shown in Palo Alto, Calif. Pending home sales increased in February but with notable regional variations, according to the National Association of Realtors. (AP Photo/Paul Sakuma)(Photo: Paul Sakuma AP)

Story Highlights

Beige Book shows "modest to moderate" economic gains through Feb. 22

Business investment showed signs of firming; financing was easy to get

Business people are optimistic about the economy — even though some aren't sure why. And consumers, while wary of tax increases that may have crimped their spending, aren't shrinking from big purchases like houses, cars and vacations.

That's the takeaway from the Federal Reserve's new "Beige Book" summary of conditions across the country, as reported by the central bank's large and always-anonymous cast of contacts in the 12 Federal Reserve bank districts nationwide. Generally, the Fed reported "modest to moderate " improvement since the last report on Jan. 16, which was the same language the previous report used to describe changes in the recovery since November.

As always, the devil is in the details.

First, the good news. The Fed generally said good things about almost all the factors that go into business investment.

Spending on services, and especially technology and logistics services that are the core of investment, was described as "generally positive.'' The outlook for manufacturing from the Fed's contacts was modestly improved, which the Fed said was better than in January.

Commercial real estate activity was mixed, but credit for developers was said to be widely available. Loan demand was stable to higher nearly everywhere, a sign that people are willing to take risks.

The consumer picture is harder to understand. In a nutshell, consumers seem to be willing to make big purchases, but the Fed and its contacts aren't sure they are spending freely overall.

The Fed said several districts saw "mixed or lower activity" among non-auto retailers — meaning, all stores besides car dealers. The delay in processing tax refunds early this year, which was due to the delay in finalizing the tax bill that passed in early January, concerns about the end of the payroll tax holiday and even new health care rules may have held back retail sales, retailers told the Fed. But auto and housing sales are stronger, and even tourism was described as robust or solid from New York to Hawaii.

That raises the stakes for two upcoming economic announcements. Friday's report on February hiring and unemployment will be one key — if consumer-dependent sectors like retail and housing construction hire briskly, that will be a sign that the balance will tip more toward optimism by mid-year.

And the March 13 report on retail sales for February will reveal more about how much the discord in Washington is hurting — or isn't hurting — the real economy.